On July 12, the FTC
released a new policy statement, staff guidance, and an issue spotlight about allegedly unfair and deceptive practices by franchisors. The
policy statement addressed the FTC’s concerns that franchisees have been reluctant or unwilling to voluntarily discuss or report to the FTC any concerns with the franchisors even where the franchisee believes a legal violation may have occurred. The FTC stated that contract provisions, including non-disparagement clauses, confidentiality or non-disclosure clauses, or goodwill clauses, may not restrict franchisees from speaking out about potential violations of the law.
The FTC also released a separate staff guidance on franchisors imposing undisclosed fees onto franchisees. The FTC reminded franchisors that the Franchise Rule required franchisors to disclose certain fees in the Franchise Disclosure Document. Failure to disclose those fees in the Franchise Disclosure Document would constitute a violation of the Franchise Rule and Section 5 of the FTC Act. The FTC urged franchisors to review their practices to ensure compliance with the law.
The FTC released an issue spotlight piece that highlighted the FTC’s Request for Information (RFI) which sought to spotlight six main issues, including with (1) franchise relationship, (2) provisions of the franchise agreement, (3) franchisor business practices, (4) payments to franchisors from third parties, (5) indirect effects on franchisee labor costs, and (6) language barriers. After receiving over 2,000 publicly posted comments during the closure of the first comment period, the FTC noted the top three franchisee concerns related to unilateral changes to franchise operating models, franchisor misrepresentation and deception, and fees and royalties. In the FTC’s press release, the FTC announced an extension of the public comment period on the RFI where stakeholders can submit comments until October 10.
